The Euro zone crisis began in 2009 when Greece's huge government debt levels were revealed, exceeding 113% of GDP. A series of bailouts were issued over subsequent years for Greece, Ireland, and Portugal as their debt levels became unsustainable and they struggled to repay loans. The crisis threatened the stability of the entire Euro zone and raised concerns it could spread to larger economies like Italy and Spain. Underlying causes included rising private and public debt globally as well as structural issues within the Euro zone without a full fiscal union to support the shared currency.

1. EURO ZONE CRISIS
Barkha Agarwal
PGDM 11-13

2. THE BEGINNING

3. Timeline of the Crisis:
• 1999: On 1 January, the currency EURO officially comes into
existence
• 2001: Greece joins the EURO
• 2008: In December, EU leaders agree on a 200 bn-euro stimulus plan
to help in boosting European growth after the global financial crisis
(US subprime).
• 2009: In April, the EU orders France, Spain, the Irish Republic and
Greece to reduce their budget deficits
• In December, Greece announces that its debts have reached 300 bn
euro.
• Greece is burdened with debt amounting to 113% of GDP - nearly
double the euro zone limit of 60%. Ratings agencies start to
downgrade Greek banks and government debt.

4. 2010
• In January, an EU report found severe irregularities in Greek accounting
procedures. Greece's budget deficit in 2009 is revised upwards to
12.7% form 3.5%.
• In February, Greece shows a series of austerity measures aimed at
curbing the deficit.
• The euro zone and IMF agree a safety net of 22bn euro to help Greece
- but no loans.
• Greek borrowing costs reach yet further record highs. The EU
announces that the Greek deficit is even worse than thought after
reviewing its accounts - 13.6% of GDP, not 12.7%.
• On 2 May, the euro zone members and the IMF agree a 110bn-
euro bailout package to rescue Greece.
• The euro continues to fall and other EU member state debt starts to
come under scrutiny, starting with the Republic of Ireland.
• In November, the EU and IMF agree to a bailout package to the Irish
Republic total 85bn euro.

5. 2011
• In February, euro zone finance ministers set up a
permanent bailout fund, called the European Stability
Mechanism, worth about 500bn euro.
• In April, Portugal admits it cannot deal with its finances itself
and asks the EU for help.
• In May, the euro zone and the IMF approve a 78bn-euro
bailout for Portugal.
• The EU approves the latest tranche of the Greek loan, worth
12bn euro.
• A second bailout for Greece is agreed. The euro zone agrees
a comprehensive 109bn-euro ($155bn; £96.3bn)
package designed to resolve the Greek crisis and prevent
contagion among other European economies.

6. 2011 contd.
• On 7 August, the European Central Bank says it will buy
Italian and Spanish government bonds to try to bring down
their borrowing costs, as concern grows that the debt crisis
may spread to the larger economies of Italy and Spain.
• Italy passes a 50bn-euro austerity budget to balance the
budget by 2013
• On 4 October, Euro zone finance ministers delay a
decision on giving Greece its next installment of bailout cash,
sending European shares down sharply.
• Speculation intensifies that European leaders are working on
plans to recapitalize the banking system.

7. 2011 contd.
• On 6 October the Bank of England injects a further £75bn into
the UK economy through quantitative easing, while
the European Central Bank gives emergency loans
measures to help banks.
• Relief in the markets that the authorities will help the banking
sector grows on 10 October, when struggling Franco-Belgian
bank Dexia receives a huge bailout.
• On 21 October euro zone finance ministers approve the next,
8bn euro ($11bn; £7bn), tranche of Greek bailout loans,
potentially saving the country from default.

8. Causes :
• Rising private and government debt levels around the world
• The structure of the Euro zone as a monetary union (i.e., one
currency) without fiscal union (e.g., different tax and public pension
rules) contributed to the crisis and harmed the ability of European
leaders to respond
5x
Government Banking
government
debt system debt
revenue

9. 2012

10. Options to deal with debt:
• Print money
Inflate your way out
• Default
Restructure the debt